To borrow from Winston Churchill, the movement in the shares of Vodafone Idea Ltd is a riddle, wrapped in a mystery, inside an enigma.

The company reported a massive loss of 50,922 crore for the quarter ended September, after providing for dues to the government that have arisen as a result of the recent order of the Supreme Court.

Vodafone Idea’s cash balance, meanwhile, has fallen further to 15,390 crore, far below the estimated 44,150 crore it owes the government.

After the news broke, in early trade on Friday, the company’s shares fell about 19%, but then rose as much as 56% from the day’s lows. Of course, at around 3 per share, even the minimum tick size of 0.05 amounts to a 1.6% movement in price.

Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

Still, why should Vodafone Idea’s shares rise at all given the dire straits the company is in?

One possibility is that with the blow from the Supreme Court being quantified by the company at 44,150 crore, the government may finally announce the quantum of the relief package it is working on for the telecom industry.

Indeed, Vodafone Idea said on a call with analysts that it does not see a problem in the government’s ability to provide relief despite the adverse Supreme Court ruling. It also suggested that the government prefers a market structure with three private operators and one public sector telco, said analysts who attended the call.

The company’s high hopes of a relief package from the government seem to have raised expectations of some investors as well.

Also watch: Why Vodafone Idea is staring at liquidation

If Vodafone Idea ends up in bankruptcy, the government will need to write off the more than 1 trillion owed by the company, and also worry about the impact on the banking sector and mutual funds.

More importantly, Vodafone Idea’s vast 2G subscriber base can’t be expected to quickly find a home in other networks. This likely disruption in services is another matter for the government to worry about, leave alone the concerns over a duopoly market and its impact on tariffs.

Of course, despite the 27% rally in Vodafone Idea shares on Friday, the stock still trades at only 3.75. A substantial relief from the government, therefore, isn’t a given, as far as stock market investors are concerned.

Some investors are also relieved that the company’s revenue and profit haven’t fallen off the cliff, despite all the negativity of the past few months.

Interestingly, the pace of customer losses eased; additions of 4G subscribers gathered pace; and total data volumes grew by a respectable 8.4%.

But clearly, there are doubts on how long these improvements will sustain. Already, voice volumes on Vodafone Idea’s network are falling, implying a churn in low-paying customers. Also, the company lowered its capital expenditure guidance for the current fiscal year, reflecting its cash flow constraints.

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